Sunday, October 26, 2008

Do pundits ever really know what they are talking about?

"Often wrong, but never in doubt!"

Each day we see "experts" on TV holding forth on various topics. In most cases, the most expert people are least in demand, as TV needs people who are great communicators who have no hesitation or self-doubt. The true expert is often very aware of the fact that no one knows everything about the topic. Even in hard sciences, it was not so long ago that "experts" thought that heavier than air flight was impossible! In topics such as economics or interpersonal relationships, there are many self-proclaimed, or even widely recognized, experts who are quite wrong. If you hear an expert or read an article by an expert, go to the original source. Frequently, you will find that it is far less definitive that it is later presented. Also, it is often less clear or relevant. Even "scientific"studies can be poorly constructed or analyzed.

Perhaps we each seek simple answers and assurance. It may just not be possible.

Tuesday, October 21, 2008

The changes being made for this crisis will not really change our economic system

There have been many, particularly in the US who have screamed that the introduction of government money into banks and a share of ownership means Socialism. This is not correct. Socialism requires long term ownership of all means of production and distribution as part of the economic system of a country. What is being done now is simply the injection of government money to sustain the current capitalist system and this will be withdrawn when the businesses are stable. Just as the New Deal did not mean socialism, neither does this. Furthermore, in US history, full nationalization even by President Eisenhower, is not uncommon as a temporary solution.

As we emerge from the current economic crisis, however long it takes, we will return to a strengthened private enterprise system in which regulation is more balanced. The only danger is that there will be an overreaction in which the law of unintended consequences could have reign.

Saturday, October 18, 2008

The American Exception - making it difficult to vote

The US is the only democracy in which it is the citizen's sole responsibility to register to vote. It is not the citizen's responsibility to sign up for jury duty - government seeks them out. In other democracies, it is the government's responsibility to register voters, though individuals have the right to register. In over 30 countries it is compulsory to vote on the basis that it is a duty. In other countries it is a right, but not a duty. Nevertheless, government reaches out to find potential voters - except in the US. As a result, while voter turnout is close to 100% in Australia, where voting is compulsory, and in the 60-70% range in the UK, where it is optional, it is in the 40s in US General elections, where registration is the obligation of the voter and it is often made difficult. As a result of the difficulty, many Americans are never registered. In 2006 only 67.65 of eligible voters were registered to vote, and 47.8% actually voted. This varies by ethic origin, with 71% of non-Hispanic whites registered, 61% of Blacks, 54% of Hispanics, and 49% of Asians. Voting followed similar patterns. Voting rates also climb as income goes up, ranging from 31.3% for people with family income below $20,000 to 64.2% of people with family income above $100,000.

If GM and Chrysler merge, it will only accelerate both their demises

So GM and Chrysler are talking about a merger. The bringing together of two struggling companies has never been successful. You are doubling the problems while increasing the bureaucracy and trying to bring together two competing organizations. GM needs to simplify its operations - from brands to manufacturing; dealers to union contracts. A radical rethink of what is a GM car is also needed. Sadly, GM is running out of time and wasting it talking about a merger with Chrysler is typical of the myopic lack of professionalism the company has shown over the past 30 years.

Thursday, October 16, 2008

Are prediction markets the way to replace voting?

My friend Jonathan Palfrey commented on a recent post that perhaps the seeds of destruction of democracy lie in the fact that so many voters are uninformed. If that is so, perhaps something more like prediction markets could be used to replace the traditional vote. Prediction markets, such as are better at predicting the outcome of events than polls are. The main reason is that instead of simple opinions,m which may be delivered without thought or knowledge, they are more like bets on an outcome. The "voter" has some real money at stake. Much as has been found that people will lose weight more reliably when they have money at stake, so do they become more accurate in prediction when they have something to lose by being wrong.

Tuesday, October 14, 2008

30% of US bridges are unsafe

Infrastructure is a real problem in the US. Not only are bridges and roads crumbling, but so are power grids - most of the wind farms being built today have no way to transmit all the power they will generate. Drinking water and irrigation systems are atrophying, public hospitals being closed down, and airports are unable to handle the demands on them. Schools are in poor physical shape, railroads inadequate, and telecommunications systems behind the need. Yet, the country is so fixated on keeping taxes low that the investment falls behind what is required. Not only is the country not building new infrastructure, but it is allowing existing infrastructure to deteriorate.

Monday, October 13, 2008

Market Research has become only slightly more reliable than crystal ball gazing

Too many companies rely solely on focus groups, whereas they are unreliable for multiple reasons. Market research is only valid if it is replicable. Focus Groups rarely are. They are useful for identifying attitudes, but not for quantifying them. Internet research is always skewed slightly, unless you want to understand the attitudes and behavior of Internet users. In all research claimed behavior is usually different from actual behavior. For example, people claim to take a shower more often than they do, or to wash their hands with soap. Response rates are dropping, sometimes down to single digits. So, even when you ensure that the sample is demographically balanced, you are getting responses from people who have time on their hands.

While we continue to believe that market research is essential, any business person has to be aware of the limitations of the data collection so that it is not over-analyzed, and ends up driving the wrong behavior.

Thursday, October 09, 2008

Do 28% of Americans vote for the "wrong" candidate?

Many people vote on the basis of incomplete, misunderstood, or irrelevant information. Richard Lay and David Redlawsk carried out research, published in 2006, which showed that there are four different kinds of voter. These are the "rational voter," who seeks out so much information that they can get confused. Then there is the "passive voter" who tends to vote by party affiliation. The "frugal voter" picks candidates on the basis of few or one issue. Finally the "intuitive voter" picks a selection on the basis of as little information as possible. As a result, many voter pick candidates who do not stand for the same views as the voter. Thus some people who will vote for John McCain will do so because they believe he is pro-choice, which he is not. Others may vote for Barack Obama because they believe he stands for withdrawing from Afghanistan, which he does not.

The result of this is that so many people vote for a candidate for the wrong reason that a candidate is quite likely to win an election because of personality or looks. Given also the very low turnouts in General elections in the USA, there is considerable room for error. Improved voter education is part of the answer, but not all. Voters have to take more respnsibility for making the right choice.

Tuesday, October 07, 2008

Regulation comes back in energy, financial services. Can airlines and telecommunications be far behind?

As we look back on the boom decades of deregulation - in financial services, energy, airlines - they do not seem to have worked. Unfortunately, in most cases, deregulation was carried out without deep thought. The deregulators did not understand the unintended consequences since they did not understand the industries. As a result, actions were taken which were more for the short-term benefit of the managers than was ever intended. Not surprising really, but unforeseen.

As a result, we are seeing regulation creep back. Inevitably, it will be as poorly thought out as the original deregulation was, so in a few years we will be dealing with the consequences.

Wednesday, October 01, 2008

Why must Congress act?

In the 20s and 30s, even into late last century, consumers used banks to keep their money. It is easy to understand that if a bank fails, you risk losing your money. That risk is reduced with FDIC Insurance, and today a major purpose of financial institutions is to lend money - not only to consumers to buy cars, houses and plastic surgery, but to businesses to build new facilities, build inventory to meet anticipated demand and hire more people. There is much less awareness of this even among people who use this extensively. Therefore, many do not immediately understand that if there is no more credit, their employer could be forced to lay them off, or even go out of business. If they are entrepreneurs, they will not be able to get investment or borrow. If they are securely employed, they may not be able to make many of the purchases which they expect to. It is seen as "their" problem, not "mine." Most of the people who took advantage of the system are out of reach - their bonuses socked away securely. When I hear about the end of Lehman, I think not of the very few at the top, but of the thousands who lost their jobs and retirement. I saw it at ENRON. It is happening again. The people at the top will suffer much less from collapse than everyone else who simply work hard and do the best they can. If there is no plan to bring stability, many of those who are now complaining most about "bail-out" will lose their jobs and much of their net worth.